EU Morning Report

Dollar plummets a day after the FOMC meeting

  • The US dollar plummeted to a three year low against a basket of currencies after the Fed interest rate decision. Fed officials decided to keep interest rates unchanged at 0-0.25% and continue their 600 billion dollar asset purchasing program until the end of the current quarter. In their statement, the FOMC said that the US economic recovery is proceeding at a moderate pace and that the labor market is gradually improving. The statement also commented on the importance of price stability and their long term inflation expectations continue to be stable. During his press conference, Fed Chairman Ben Bernanke kept a slightly dovish tone and gave no indication of when the Fed will start a tightening policy. He also said that stimulus will resume by reinvesting maturing securities after the QE2 program ends, further weighing on the dollar. The greenback weakened after the FOMC statement and Bernanke's press conference, but risk appetite in the market appears to remain elevated.  
  • The euro resumes its rally against the dollar and climbed above the 1.48 level. Speculation that interest rates in the US will remain near zero levels for an extended period of time raised demand for higher yielding assets. Against the dollar, the euro gained 1.7% climbing as high as 1.4881 from 1.4632.
  • The Australian dollar rallied to a fresh all-time high versus the dollar supported by higher demand for high yielding assets. Further supporting the Aussie are expectations for an interest rate hike following yesterday's stronger than expected Consumer Price Index. While commodity prices continue to surge, the Aussie climbed as high as 1.0947 versus the dollar from 1.0779.
  • Sterling bounced up after the release of the first quarter's Gross Domestic Product. Data showed the UK economy grew by 0.5% in the first quarter of 2011 which is a significant figure comparing to the 0.5% contraction of the final quarter of 2010. Against the dollar, sterling jumped to 1.6746 from 1.6434.
  • Oil prices ticked higher at 113.61 dollars a barrel from 110.72. Gold rose at 1533.30 dollars an ounce from 1502.96. Silver also rose to 48.70 dollars an ounce from 44.84.  

Currency to watch out for: EURUSD & USDJPY  

  • § The EURUSD pivot point is at 1.4770 with a preference to enter Long positions at 1.4770
  • § The USDJPY pivot point is at 82.25 with a preference to enter Short positions at 82.25              

Today's calendar and market movers:

  • § US Gross Domestic Product Annualized in Q1 is forecasted to gain 2%
  • § US Initial Jobless Claims is forecasted to fall to 392K
  • § US Pending Home Sales in March is forecasted to gain 1.5% 

Equity Markets:                                               

US equities were positive on Wednesday with the S&P500 trading up 0.62% and the DJIA trading up 0.76%. The European bourses were mixed with the FTSE trading down -0.02%, the DAX up 0.66% and the CAC up 0.55%. The NIKKEI and the HSI at the time of writing are trading up 1.11% and 0.5% respectively. 

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